5-10pc CGT imposed on sale of property

SOHAIL SARFRAZ

ISLAMABAD: The government has imposed 5-10 percent Capital Gains Tax (CGT) on sale of property and 2 percent Capital Value Tax (CVT) on immovable properties in federal capital. Turnover tax has been reduced from one percent to 0.5 percent; higher rates of 19.5-22  percent sales tax slashed to 16 percent; federal excise duty (FED) eliminated on 10 items and customs duty reduced from 35 to 30 percent on 293 items.

Finance Bill (2012-13) issued here on Friday revealed that 10 percent CGT would be applicable on sale of property within one year of the date of the acquisition of property; 5 percent CGT on sale of property within 2 years and no CGT would be applicable on sale of property beyond two years. The FBR has estimated generation of Rs 1.5 billion through imposition of CGT on sale of property. 

The CVT on immovable properties is not being levied in Islamabad Capital Territory. It is proposed to levy and collect CVT on transactions of immovable properties in Islamabad with identical structure adopted by provinces.

The tax rates for passengers as well as goods transport vehicles are proposed to be enhanced for 20 persons or more from Rs. 100 to Rs. 500 per seat per annum. In case of goods transport and vehicle, the tax rate has been increased from Rs. 1 to Rs. 5 per kg laden weight.

A number of tax relief measures have been taken for the business community as well as general public. In  case  of  business  community  the  rate  of  minimum  tax  is proposed to be reduced to 0.5% from 1% on gross turnover. The relief measure would cause revenue loss of Rs 11 billion.

The basic exemption limit has been raised for salaried and business individuals to Rs.400,000 and the existing slabs have been reduced from 17 to 5.  These concessionary measures will exempt 64,420 taxpayers besides reducing the effective tax rates and providing relief to the entire salaried and business community. The FBR will suffer a revenue loss of Rs 4.5 billion by providing relief to salaried class.

The advance tax @ 0.2 % is withheld on cash withdrawal from banks where such withdrawal exceeds Rs. 25,000 in a day. It has been proposed that the said limit of cash withdrawal is to be enhanced to Rs. 50,000 per day.

One of the major documentation measures is that the manufacturers have been declared as withholding agents to collect one percent tax against sales made to traders/distributors. The FBR has estimated to generate Rs 13-14 billion through this particular revenue generation measure.

For incentivising the taxpayers opting out of Presumptive Tax Regime (PTR) a lower rate of tax is being offered to commercial importers, exporters and suppliers.

According to the Finance Bill (2012-13), the exemption granted to profit and gains to the Venture Capital Company and Venture Capital Fund till 2014 is proposed to be extended for a period of 10 years ie up to 2024.

It  has  been  observed  that  the  banks  invest  in  capital  market  and  in  return dividend received by banks is taxed @ 10%. In order to eliminate the tax arbitrage it is proposed that dividend received by banks from money market funds and income funds are to be taxed progressively for a period of two years (for tax year 2013 @ 25% and for tax year 2014 onwards @ 35 percent).

To promote investment  in  securities  and  insurance  sectors, the  limit of investment eligible for tax credit is being enhanced from 15% to 20% of the taxable income.

The existing limit of investment of Rs. 500,000 in securities or insurance premium is also being increased to Rs. 1,000,000. The retention period of securities is also being reduced from three to one year.

The government has also given exemption from withholding tax on the profit on intra-group debt. However, the income from profit on debt will remain taxable.

Through the Finance Bill, the value of vehicles is proposed to be enhanced from Rs 1.5 million to Rs 2.5 million for the purpose of depreciation allowance.

The  rate  of  initial  depreciation  on  new  buildings  is  50%  which  resulted in converting the accounting income to tax loss. The initial rate of depreciation is being reduced to 25 percent.

To provide relief to the employees availing small amounts of loans from their employer, the loan up to Rs. 500,000 is proposed to be exempted from income tax whereas the benchmark interest rate for loans above this limit shall be fixed at 10% instead of the progressively increasing rate which has reached 13%.

To encourage a competitive market for retirement schemes, it is proposed that accumulated balance of provident fund transferred to approved pension fund should be separately marked by the Pension Fund Manager and any withdrawal representing this marked balance should be exempted from tax and be treated as if that is withdrawn from provident fund and hence tax-free.

The income of retirement/pension funds is exempt from tax if 90% of the profit is distributed as dividend. Any payment from a provident fund is exempt from tax in the hands of recipient. Existing practice of obtaining yearly exemption certificate is cumbersome and time consuming for the entities and refunds for any tax suffered against the exempt income is proposed to be changed and the said funds be granted exemption from deduction of withholding tax.